Business Organizations Flashcards

Under the Model Business Corporation Act (MBCA), what is the minimum number of incorporators required to form a corporation?

Answer: One

The MBCA allows a corporation to be formed by a single incorporator who delivers articles of incorporation to the state filing office.

The business judgment rule protects directors who make decisions that:

Answer: Were made in good faith, with due care, and in the honest belief the action was in the corporation's best interest

The business judgment rule protects directors who acted in good faith, with reasonable care, and in the corporation's best interest, even if the decision later proves unwise.

When will a court most likely pierce the corporate veil and hold shareholders personally liable?

Answer: When the corporate form is used as a sham or to perpetrate fraud, and there is such unity of interest that the corporation and shareholder are indistinguishable

Courts pierce the corporate veil when the corporate form is abused as a sham or to perpetrate fraud, and maintaining the fiction would sanction injustice.

A shareholder's preemptive right allows the shareholder to:

Answer: Purchase newly issued shares in proportion to their current ownership before they are offered to outsiders

Preemptive rights give existing shareholders the opportunity to maintain their proportional ownership by purchasing new shares before they are sold to outside parties.

An act performed by a corporation outside the scope of its stated purposes in the articles of incorporation is known as:

Answer: Ultra vires

Ultra vires refers to acts that exceed the authority granted to a corporation in its charter; under the MBCA, ultra vires acts are generally enforceable but may give rise to shareholder suits.

In a short-form merger under the MBCA, which approval is required when a parent corporation owns at least 90% of a subsidiary?

Answer: Only the parent board's approval is required; no shareholder vote of either corporation is needed

In a short-form merger where the parent owns at least 90% of the subsidiary, only the parent board needs to approve; no shareholder vote of either entity is required.

Directors of a corporation owe fiduciary duties of:

Answer: Care, loyalty, and good faith

Directors owe the duties of care (act with reasonable care), loyalty (act in the corporation's best interest), and good faith (act honestly and in good conscience).